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Vanderbilt Law Review

First Page

197

Abstract

Since one of the varied uses to which stock purchase options maybe put is as a means of raising, or facilitating the raising, of capital, we deem it appropriate to direct attention to them. Like so many instrumentalities, they are subject to abuse and raise some difficulties, but used honestly and with discretion, they do represent a means (a) of compensating promoters and underwriters and retaining their continuing interest in the financial success of the corporation, (b) of adding speculative attraction to the security with which it is issued, or, less frequently, (c) of raising funds by direct and independent sale of the warrant. More commonly, warrants are issued to existing shareholders to evidence their right to subscribe to an additional issue of stock. The usual distinction between a "stock purchase" warrant or option and a "stock subscription warrant" or "right" is that the latter runs for a very short period measured in days whereas the former is ordinarily for long terms measured in years, possibly even "perpetual." Currently, the most prevalent use of the stock purchase option is by way of "incentive compensation"to "key employees."

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